The 21st Shanghai International Automobile Industry Exhibition, also known as the 2025 Shanghai Auto Show, commenced today, with a robust participation of nearly 1,000 enterprises from 26 countries and regions. Over 190 press conferences and more than 100 global premieres of new car models marked the event. Yet, beneath this lively façade lies a critical question: how to revamp the procurement system amidst escalating trade barriers. Recently, S&P Global highlighted that geopolitical tensions, tariff wars, a fragmented global economy, and the complexities of supply chains continue to erode the stability automakers have traditionally relied upon.

Specifically within automotive procurement, the industry has evolved significantly—from the vertically integrated era epitomized by Ford's production model in the early 20th century, to the rise of global procurement spearheaded by Toyota's 'Lean Production' system and the globalization of supply chains, and subsequently, the cost-driven globalization post-2000.

However, the pandemic and trade conflicts have posed formidable challenges, revealing the risk of supply chain disruptions. The traditional automotive procurement model, reliant on global division of labor, now faces unprecedented hurdles, prompting a shift towards localization. Emerging trends include adopting tariff-insulated cost strategies, the demise of Just-in-Time production strategies, and the core shift towards software procurement.

▍Trend 1: Transitioning from 'Best-Landed Cost' to 'Tariff-Insulated Cost'

Over the past decade, the intensification of geopolitical conflicts, the fragmentation of trade rules, and the pursuit of sustainable development have rendered the once golden rule of global procurement impractical. The supply chain radius of automotive enterprises is continually shrinking, with procurement strategies now focusing on nearshore outsourcing models centered around regions like the North American Free Trade Agreement (USMCA) and the European Union's Carbon Border Adjustment Mechanism (CBAM framework), rather than cross-continental global layouts.

As protectionist policies intensify and trade barriers escalate between major economic regions, even within seemingly stable regional trade blocs, procurement security is subject to institutional shocks. For instance, the CBAM increases the overall cost of aluminum alloy wheels exported from China to Europe. This underscores that reliance solely on geographical proximity and regional trade agreements can no longer withstand systemic risks, necessitating new procurement strategies for automotive enterprises.

Industry leaders are now upgrading their procurement decision-making basis from 'Best-Landed Cost' to 'Tariff-Insulated Cost' to mitigate the impact of fluctuating tariff environments and trade uncertainties. This new system represents a more complex and adaptable procurement strategy that transcends mere geographical proximity or regional trade agreements.

▍Trend 2: Reevaluating the Just-in-Time (JIT) Model

The increasing frequency of black swan events is disrupting the Just-in-Time (JIT) system that has been operational in the automotive industry for half a century. This lean model, centered on 'zero inventory,' has been highly effective in reducing costs and improving efficiency but exposes organizational risks in an era of fragmented global trade.

Entering 2025, the combination of escalating tariff conflicts, fragmented trade zones, and increasingly unpredictable customs clearance times has rendered the seamless cross-border transportation and predictable transportation times relied upon by the traditional JIT model 'unpredictable.' This leads to decreased cost efficiency and increased procurement risks. Automotive enterprises are now compelled to expand buffer inventories of key components to address supply chain disruption risks, as well as the complex risks associated with tariff-driven cost changes and potential trade policy shifts.

This shift in automotive procurement is particularly evident in cases where final assembly requires crossing multiple trade borders. Each cross-border movement of components and raw materials carries the risk of delayed arrival or cost increases. Therefore, selective inventory management for key components has become a strategic necessity for automotive enterprises.

▍Trend 3: Embracing Software-Centric Procurement

As automotive products become increasingly reliant on software and digital solutions, automotive procurement is undergoing a paradigm shift from 'hardware-driven' to 'data-driven.' The traditional procurement model, centered on physical components, is accelerating its disintegration, replaced by a new ecosystem where the value of software and services exceeds 40%.

This necessitates procurement managers to seek technological partners who can meet future product demands, rather than merely determining the lowest prices for traditional components. These partners include suppliers specializing in software platforms, cybersecurity solutions, and connectivity components; providers of digital platforms capable of continuous innovation; and suppliers capable of supporting vehicles' current and future software needs.

The transition to 'software-defined vehicles' poses unprecedented challenges to automotive procurement costing models. Traditional component pricing methods are built around physical parts with clear bills of materials and established amortization models. However, when software is added, its inherent scalability means that its development costs do not adhere to traditional statistical methods. Its continuous updates require ongoing operational expenses, and its value proposition often lies in features that can be activated post-sale through subscriptions.

Therefore, procurement managers must reconstruct pricing models, considering cybersecurity requirements, over-the-air update capabilities, and the long-term commitment required by software partner suppliers to maintain and enhance these systems throughout the vehicle's lifecycle. This shift from hardware-centric to software-centric procurement also necessitates automotive enterprises to develop entirely new frameworks for cost assessment and supplier relationships.

▍Trend 4: Addressing Compliance Requirements Amid Differentiated Regulation

Against the backdrop of profound changes in the automotive industry, regulatory compliance has moved from the periphery to the strategic core. Automotive enterprises are facing increasing compliance pressure, and it is predicted that this year, they will actively implement IT system upgrades and supply chain business process transformations globally to comply with sustainable procurement regulatory requirements in various regions.

For example, the European Union is leading this regulatory drive through battery regulations and the Corporate Sustainability Due Diligence Directive (CSDDD), which will be mandatory for all vehicles sold in the EU market from 2026. States like California in North America are implementing stringent procurement requirements, particularly for electric vehicle components and critical minerals. China has formulated energy consumption dual control policies and a dual-credit system for automakers, enforcing specific procurement and environmental standards. Meanwhile, Japanese and Korean regulations are striving to align with EU standards.

This regional variation in regulatory requirements poses challenges for global automotive enterprises, which must navigate different compliance standards while maintaining efficient supply chains. The result may be a complex matrix of requirements, with vehicles destined for the EU market facing the strictest standards, while vehicles destined for other regions need to follow their respective regulatory intensities and implementation timelines.

▍Trend 5: Enhancing Efforts in Digital Procurement

Collaboration with suppliers is crucial for automotive enterprises to optimize their procurement strategies. Currently, enterprises are establishing partnerships with an increasing number of key suppliers to drive innovation and improve supply chain efficiency, often facilitated by emerging digital procurement platforms.

As automotive enterprises seek solutions to key challenges such as semiconductor availability tracking, sustainability compliance raw material traceability, and multi-tier supplier risk monitoring, these digital collaboration platforms are becoming increasingly important. This trend extends beyond mere data sharing to include collaborative planning systems, shared capacity management, and joint early warning mechanisms for potential disruptions. This represents a fundamental shift from traditional arms-length procurement relationships to deeply integrated digital ecosystems.

As the dividends of globalization shift towards regional survival, automotive procurement is evolving from a single-dimensional race for 'optimal cost' to a comprehensive competition that integrates trade insulation, technology penetration, compliance pressures, and digital development. At the 2025 Shanghai Auto Show, multinational automakers and local brands will present product portfolios with greater regional adaptability. The underlying logic supporting these differentiated strategies is the new competitive advantage accumulated by the procurement system amidst this global restructuring. The transformation of procurement forms and content not only concerns supply chain security but also determines the overall competitiveness of automakers in the new global trade environment.

Typeset by Zheng Li

Source: S&P Global

Image Source: Shutterstock